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Are Investors Undervaluing McKesson (MCK) Right Now?

Zacks Equity Research

The proven Zacks Rank system focuses on earnings estimates and estimate revisions to find winning stocks. Nevertheless, we know that our readers all have their own perspectives, so we are always looking at the latest trends in value, growth, and momentum to find strong picks.

Looking at the history of these trends, perhaps none is more beloved than value investing. This strategy simply looks to identify companies that are being undervalued by the broader market. Value investors use fundamental analysis and traditional valuation metrics to find stocks that they believe are being undervalued by the market at large.

In addition to the Zacks Rank, investors looking for stocks with specific traits can utilize our Style Scores system. Of course, value investors will be most interested in the system's "Value" category. Stocks with "A" grades for Value and high Zacks Ranks are among the best value stocks available at any given moment.

One company to watch right now is McKesson (MCK). MCK is currently sporting a Zacks Rank of #2 (Buy), as well as an A grade for Value. The stock is trading with a P/E ratio of 9.15, which compares to its industry's average of 15.82. Over the past 52 weeks, MCK's Forward P/E has been as high as 13 and as low as 7.78, with a median of 9.68.

Investors should also note that MCK holds a PEG ratio of 1.40. This popular figure is similar to the widely-used P/E ratio, but the PEG ratio also considers a company's expected EPS growth rate. MCK's industry currently sports an average PEG of 1.76. Within the past year, MCK's PEG has been as high as 1.50 and as low as 1.12, with a median of 1.33.

We should also highlight that MCK has a P/B ratio of 2.63. Investors use the P/B ratio to look at a stock's market value versus its book value, which is defined as total assets minus total liabilities. MCK's current P/B looks attractive when compared to its industry's average P/B of 2.85. Over the past year, MCK's P/B has been as high as 3.24 and as low as 2.22, with a median of 2.68.

Finally, investors should note that MCK has a P/CF ratio of 7.57. This metric takes into account a company's operating cash flow and can be used to find stocks that are undervalued based on their solid cash outlook. MCK's current P/CF looks attractive when compared to its industry's average P/CF of 13.55. Over the past year, MCK's P/CF has been as high as 10.07 and as low as 4.59, with a median of 7.62.

These are just a handful of the figures considered in McKesson's great Value grade. Still, they help show that the stock is likely being undervalued at the moment. Add this to the strength of its earnings outlook, and we can clearly see that MCK is an impressive value stock right now.

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